	Introduction

Beneficial ownership refers to the natural person or persons who invest in, control, or otherwise reap gains from an asset, such as a bank account, real estate property, company, or trust.. 2513 , S. 1889 's requirements would be limited to small corporations and LLCs.. According to FATF, this gap exacerbates U.S. vulnerability to money laundering by preventing law enforcement from efficiently obtaining such information during the course of investigations.. Beneficial Ownership Policy and Legislation

As previously noted, the U.S. government has long recognized the ability to create legal entities without accurate beneficial ownership information as a key vulnerability of the U.S. financial system.. For some years, the United States has been criticized by international bodies for gaps in the U.S. anti-money laundering (AML) system related to a lack of systematic beneficial ownership disclosure.. H.R.. In 2006, GAO published a report entitled Company Formations: Minimal Ownership Information Is Collected and Available , which described the challenges of collecting beneficial owner data at the state level.. In its 2016 review of the U.S. government's AML/CFT regime, FATF noted that the "lack of timely access to â¦ beneficial ownership information remains one of the most fundamental gaps in the U.S.. In some cases, an asset's beneficial owner may not be listed in public records or disclosed to federal authorities as the legal owner.. In the United States, corporations, LLCs, and partnerships are formed at the state level, not the federal level.. Overview

		Beneficial Ownership and U.S. Corporate Formation

While beneficial ownership information is relevant to a variety of assets, recent policy attention has focused on the beneficial ownership of companies, and in particular, the use of shell companies to anonymously purchase assets, such as real property, and to store and move money, including through bank accounts and wire transfers.. Recent U.S. regulatory steps and legislation have particularly focused on beneficial ownership disclosure related to the use of shell companies with hidden owners that conduct financial transactions or purchase assets.. Several bills in the 116 th Congress seek to address the use of GTOs to disclose the beneficial owners of entities involved in the purchase of all-cash real estate transactions (see text box below).. Such ongoing vulnerabilities have placed the United States under domestic and international pressure, including from the FATF, to tighten its AML/CFT regime with respect to beneficial ownership disclosure requirements.. The 2018 risk assessment additionally clarified that such vulnerability is further compounded by shell companies' ability to transfer funds to other overseas entities.. The U.S. Department of the Treasury's 2015 National Money Laundering Risk Assessment and its 2018 update identify the misuse of legal entities as a key vulnerability in the banking and securities sectors.. The regulation covers financial institutions that are required to develop AML programs, including banks, securities brokers and dealers, mutual funds, futures commission merchants, and commodities brokers.. This authority to impose so-called "Geographic Targeting Orders" (GTOs) dates back to 1988.. Under the CDD Rule, certain U.S. financial institutions must establish and maintain procedures to identify and verify the beneficial owners of legal entities that open new accounts.. Under the rule, covered financial institutions must now collect certain identifying information on individuals who own 25% or more of legal entities that open new accounts.. While state requirements vary, most states do not collect, verify, or update identifying information on beneficial owners.. While such companies may be created for a legitimate purpose, there are also concerns that the use of some of these companies can facilitate crimes, such as money laundering.
Beneficial ownership refers to the natural person or persons who invest in, control, or otherwise reap gains from an asset, such as a bank account, real estate property, company, or trust. In some cases, an asset's beneficial owner may not be listed in public records or disclosed to federal authorities as the legal owner. For some years, the United States has been criticized by international bodies for gaps in the U.S. anti-money laundering system related to a lack of systematic beneficial ownership disclosure. While beneficial ownership information is relevant to several types of assets, attention has focused on the beneficial ownership of companies, and in particular, the use of so-called "shell companies" to purchase assets, such as real property, and to store and move money, including through bank accounts and wire transfers. While such companies may be created for a legitimate purpose, there are also concerns that the use of some of these companies can facilitate crimes, such as money laundering. In the United States, corporations and other legal entities such as limited liability companies (LLCs) and partnerships are formed at the state level, not the federal level. Corporation laws vary from state to state, and most or all states do not collect, verify, and update identifying information on beneficial owners.
The U.S. government has long recognized the ability to create legal entities without accurate beneficial ownership information as a key vulnerability of the U.S. financial system. In 2006, the U.S. Government Accountability Office (GAO) published a report entitled Company Formations: Minimal Ownership Information I s Collected and Available , which described the challenges of collecting beneficial owner data at the state level. The U.S. Department of the Treasury's 2015 National Money Laundering Risk Assessment and its 2018 update identify the misuse of legal entities as a key vulnerability in the banking and securities sectors. The 2018 risk assessment additionally clarified that such vulnerability is further compounded by shell companies' ability to transfer funds to other overseas entities. Such ongoing vulnerabilities have placed the United States under domestic and international pressure, including from the international Financial Action Task Force (FATF), to tighten its anti-money laundering and countering the financing of terrorism (AML/CFT) regime with respect to beneficial ownership disclosure requirements. In its 2016 review of the U.S. government's AML/CFT regime, FATF noted that the "lack of timely access to â¦ beneficial ownership information remains one of the most fundamental gaps in the U.S. context." According to FATF, this gap exacerbates U.S. vulnerability to money laundering by preventing law enforcement from efficiently obtaining such information during the course of investigations.
Recent U.S. regulatory efforts and legislation have focused in particular on beneficial ownership disclosure related to the use of shell companies with hidden owners in the banking and real estate sectors. Recent federal regulatory tools include Treasury's Customer Due Diligence (CDD) rule and use of Geographic Targeting Orders (GTOs). Under the CDD Rule, effective since May 2018, certain U.S. financial institutions must establish and maintain procedures to identify and verify the beneficial owners of legal entities that open new accounts. The regulation covers financial institutions that are required to develop AML programs, including, banks, securities brokers and dealers, mutual funds, futures commission merchants, and commodities brokers. Covered financial institutions must collect identifying information on individuals who own 25% or more of legal entities. Since January 2016, Treasury's Financial Crimes Enforcement Network (FinCEN) has issued GTOs to require certain title insurance companies to collect and report identifying information about the beneficial owners of legal entities that conduct certain types of high-end residential real estate purchases. A number of legislative proposals have been introduced related to beneficial ownership disclosure in the 116 th Congress. Some of these legislative proposals, such as H.R. 2513 and S. 1889 , seek in various ways to impose certain duties on those who form corporations, LLCs, partnerships, or other legal entities to disclose their beneficial owners. These proposals would also mandate that such information be more readily available to authorities (such as federal and state law enforcement and regulatory agencies).